Smithfield's Pope says retail meat prices poised to increase

February 12, 2010
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by Joel Crews

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INDIAN WELLS, CALIF. — While assessing the state of the industry at the National Meat Association’s annual convention, Smithfield Foods Inc. CEO, Larry Pope, admitted it’s difficult to summarize in one fell swoop. When taking into account the state of the beef, pork and the poultry industries independent of each other, one broad brush stroke doesn’t really tell the story.

Each species now has its own set of circumstances and factors and therefore the status of each is quite different, he said. Additionally, consideration must be given to the state of the production of livestock as well as the processing business. All of these segments have very different dynamics impacting their current status.

Addressing the state of the meat-processing industry, Mr. Pope said the past year has likely been positive for many companies.

“The reason it’s been good is partially because the livestock business has been so bad,” he added. “You’ve probably made some pretty darn good margins,” he said to his processing counterparts in attendance about the past year’s performance. “I’m not sure that’s going to continue,” he added, because the losses endured by livestock producers cannot continue much longer.

What has to happen, he said, is “meat prices have to go up; that’s a fact of life. With corn prices expected to creep back up from $4 and $5 per bushel to upwards of $8, the cost will have to be passed along in the form of higher prices at the supermarket. “And you can write that down — we will pay $8 again for corn,” Mr. Pope said.

Meanwhile, the costs running processing businesses, from transportation to utility costs and insurance premiums, continue to increase along with pressures from retail customers to not raise prices. Leading the charge for resisting price increases is Walmart, which has informed its suppliers it will not allow price increases in the coming months in response to their customers’ demands. For processors enjoying positive margins as of late, Mr. Pope issues a warning to brace for leaner times to come. “If you haven’t gotten your house in order from a cost standpoint, I’m telling you it’s time to focus on it.”

As a supplier of raw material to many processing companies in the industry, Mr. Pope says Smithfield is doing everything possible to raise prices.

In assessing demand in today’s market, Mr. Pope categorized it as relatively soft, especially in the foodservice segment, as is evidenced by the onslaught of campaigns among all foodservice concepts promoting bargain menu prices. This, too, fuels pressure on suppliers from the foodservice chains who are desperate to lure diners back to their tables.

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